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Software & Services |
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China's Software Outsourcing Growth
Slows January 16, 2008 CCID Consulting projects decreased growth rate of China's software outsourcing revenues to 40% to $2 billion in 2007, from 55% in 2006. While growth is still high, CCID Consulting expects the decrease in growth rate due to limitations in China's outsourcing firms' capabilities and scale. Nonetheless, China's outsourcing firms will grow their business and competencies through strategic partnerships with multinational firms who have the more developed and mature expertise in outsourcing. Chinese firms will also target specialization in growing areas such as BPO, HR, and SaaS.
Chinese firms still lag in needed outsourcing competencies, which affects their growth and profit potential. While global outsourcing growth has been high, China's own outsourcing growth has not kept pace. The major inhibitor is needed resource skills, particularly in management, methodology application, project management, internationalization capabilities, and certain specialized skills. Many of these competencies are developed through experience in addition to training. Chinese outsourcing firms' lack of such competencies, in turn, hinder its scale, and hence, growth potential. In outsourcing, human resources are the critical factor to building scale. Another dimension to consider is the value of the services provided. Chinese firms typically play in the lower end of the services "value chain", with lower profits and revenues. To illustrate, Neusoft is the largest Chinese outsourcing firm, with a headcount of less than 10,000. Top Indian outsourcing firms number in the 80,000 range. Moreover, CCID Consulting estimates revenues per person generated by Chinese firms to be under $20,000; while Indian firms $50,000. At the same time, strategic partnerships are forming between Chinese firms and multinationals. Microsoft has formed strategic partnerships with a number of Chinese firms, including Chinasoft International, Hunan Powerise, Shandong Langchao, Digital China, Zheda Insigma Technology, Baosight Software, BOCO, and Micrologo Coding. These strategic partnerships can range from alliances to shares in the Chinese firms. The general model is that Microsoft will have certain technology development or outsourcing needs, and the Chinese strategic partners help deliver such needed services. IBM, Nokia, Motorola, and others have similar initiatives. These strategic partnerships enable Chinese firms to start securely at some point on the services value chain, and develop needed expertise and skills. On the other hand, multinational services companies are establishing direct outsourcing offices in China. TCS started its joint venture operation in 2007, and now has 800 employees. EDS established its first Chinese global service center in Wuhan, and was planning to establish another this year. IBM's Global Delivery Center network has more than 2000 employees in four cities across China. HP has also established its Global Delivery Centers in three cities across China, slated to deliver services worldwide. Government policies are encouraging the formation of outsourcing and development centers in China's tier 2 cities. Beijing, Dalian and Shanghai have been the major municipalities and cities that hold outsourcing centers, as they consist of half the total market. In 2007, government policies have subtly shifted to encouraging development the cities of Shenyang, Xi'an, Chengdu, Changchun, Jinan, Chongqing and Guangzhou, and CCID Consulting sees expansion in those cities as well. For more information Please contact us for these and other China-related data, information and products. Unless otherwise specified, all information provided is sourced from CCID Consulting. |
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